Palantir (PLTR) vs. Microsoft (MSFT): Which AI Stock Offers Better Value after the Sell-Off?

Two of Wall Street’s most-watched AI software stocks, Palantir (PLTR) and Microsoft (MSFT), have come under pressure recently as the broader tech sector pulls back. With PLTR down about 27% year-to-date and MSFT slipping around 23%, investors are now looking for opportunities—but which stock offers more upside from current levels? Using TipRanks’ Stock Comparison Tool, we take a closer look at both names to see which looks more attractive after the sell-off.

Is Palantir Stock Too Expensive Even after the Drop?

Palantir remains one of the strongest momentum plays in the AI space, supported by rapid growth in both its government and commercial businesses. The company has been benefiting from rising demand for its AI platforms, particularly as enterprises look to adopt data-driven solutions.

However, the stock has come under pressure recently, down roughly 31% from its recent highs, partly due to concerns around valuation and rising competition. Comments from investor Michael Burry and fears that new AI tools could challenge Palantir’s positioning have added to the cautious sentiment.

From a valuation standpoint, Palantir still trades at a premium compared to many software peers, which has kept some investors cautious even after the recent pullback. For instance, at a forward P/E of about 115x, Palantir trades well above its sector median of 21x and far above mega-cap AI leaders.

That said, analysts remain moderately bullish on PLTR. The stock carries a Moderate Buy consensus rating, with the average PLTR stock price target of about $194, implying roughly 49% upside from current levels.

Microsoft Stock Looks Cheaper, but Growth Concerns Remain

Microsoft stock offers a more balanced risk-reward profile after the recent sell-off. The stock is down about 23% year-to-date—its weakest start to a year in over a decade—as investors react to heavy AI spending and slightly slower cloud momentum.

A key concern is the company’s aggressive investment in AI. Microsoft spent roughly $37.5 billion in a single quarter to build out data centers and infrastructure. While this supports long-term growth, investors are increasingly focused on how quickly these investments will translate into profits. At the same time, Azure continues to grow at around 39%, which remains strong but is a step down from earlier highs, adding to the cautious tone.

That said, the pullback has made the stock look more attractive on valuation. Microsoft now trades at about 23x forward earnings, well below its historical average and far cheaper than many high-growth AI peers.

Importantly, the company also has a strong financial cushion. Microsoft holds a massive $625 billion backlog of contracted revenue, providing steady visibility and support even during periods of market volatility. Meanwhile, analysts remain strongly bullish on the stock. Microsoft holds a Strong Buy consensus rating, with the average MSFT price target of $581.61 per share, implying roughly 56% upside from current levels.

Conclusion

Based on current data, Microsoft appears to be the more attractive pick after the sell-off. The stock offers higher upside of about 56%, carries a Strong Buy rating, and trades at a much more reasonable valuation, supported by its large and stable business.

In comparison, Palantir still offers solid upside of around 49% and strong growth potential, but its premium valuation and Moderate Buy rating suggest higher risk.